Design-Builder’s services were terminated by the project owner. It then sued the owner for breach of contract. The owner counter-claimed — alleging breach of contract, breach of “implied duties of workmanlike performance and fitness for a particular purpose,” and negligence. The counterclaims related to a “multitude of design and construction issues.” When Design-Builder tendered the counterclaim to its CGL carrier the carrier filed suit seeking declaratory judgment to no coverage exists because the damages asserted in the counterclaims were not caused by an “occurrence”, i.e., an “accident.” Court held that normal expected damages from shoddy workmanship are foreseeable or expected as a matter of law and therefore the work that causes those damages is not an “accident.”  Summary judgment granted for the carrier. American Family Mutual Insurance Co., v. Mid-American Grain Distributors (project owner) v. Mid-American Grain Distributors, LLC (Design-Builder), 958 F. 3d 748 (8th Cir. Ct. Appeals, 2020).

The court stated that the only issue on appeal was whether the counter claims alleged that damages were caused by an occurrence so as to come within the scope of the CGL policy. The determining inquiry of whether an act is an “accident” is whether the insured foresaw or expected the injury or damages that resulted from the act.

In order to answer this question of foreseeability, the first thing the court considered was what it means to be foreseeable. Is it foreseeable to the actual insured, subjectively speaking, or to a reasonable insured, objectively speaking? Quickly passing by this issue, the court included that foreseeability may be “inferred as a matter of law” given the “nature or character of the act,” and the type of damages at issue. The court may infer as a matter of law, “that the insured had the relevant state of mind including coverage when the damages resulting from the insureds acts are the ‘natural and probable consequences’ of those acts.”

“Following this rationale, we ask whether [Owner’s] damages are the “normal, expected consequence” of [Design-Builder’s] allegedly shoddy work. As pleaded, [Owner’s] damages all flow directly from the “multitude of design and construction issues” with Mid-American’s work. Specifically, [Owner] claims damages in the form of costs it “has and will incur” to “investigate,” “identify,” and “correct [Design-Builder’s] defective design and workmanship” and in the form of lost profits [Owner] “has and will suffer” due to [Design-Builder’s] work…. [Owner’s] damages are the “normal, expected consequence” of [Design-Builder’s] work. They are thus foreseeable as a matter of law, so [Design-Builder’s work is not an “accident,” and thus not an “occurrence,” under the CGL.”

Comment: The court did not address whether a professional services exclusion in the CGL policy could have also been asserted by the carrier as a basis for denying coverage.


About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with ConstructionRisk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk Report and may be reached at or by calling 703-623-1932.  This article is published in ConstructionRisk Report, Vol. 22, No. 6 (Jul/Aug 2020).

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